Tesla Stock Split: Big Rally Ahead?
|Tesla Stock Split|
– In a recent filing with the Securities and Exchange Commission Tesla has shown intent to announce yet another stock split.
– The ratio of Tesla stock split is unlikely to be known before October
– The last stock split led to a significant jump in Tesla stock price but it also came on the back of solid business performance
In the last two months, there has been a surge in announcements of stock split yet again. Amazon (AMZN) and Alphabet (GOOGL) both announced a 20 for 1 stock split. If approved by shareholders, Amazon will go through a stock split in early June and Alphabet in mid-July. The intent behind the stock split is to make it more accessible to a large category of small retail investors. Post-split Amazon share would trade at around $160 and Alphabet will trade at around $140.
Following the footsteps of these tech giants, Tesla Inc in a recent filing with the Securities and Exchange Commission announced its plans to announce a stock split soon. We do not know the ratio and date of split as of now, but Elon Musk has made everyone talking about Tesla shares yet again with the recent announcement. The proposal needs to be put forward in shareholders meeting and needs to be approved for a proportional increase in number of shares. The proposal is likely to come up in the annual shareholders meeting scheduled in Fall of this financial year.
Reasons for Tesla Stock Split
- Tesla Inc last declared a stock split in August 2020. The 5 for 1 stock split became effective from August 31st. Tesla was trading at $2230 just before the split, which fell to $446 on August 31st.
- The split was a statement that Tesla Inc products are more accessible to retail people, be it shares or vehicles products. The split was followed by an increase in production of relatively cheaper models like Model 3 and Model Y, and it was meant to motivate people who were on the edge, giving them more reasons to invest in Tesla shares and Tesla products. It was a signal of making luxury items more accessible to retail.
- Moreover, Tesla shares had a fantastic run post announcement of the stock split. Tesla Inc gained 81% from the date of announcement till 31st August 2020 (the day it became effective).
- The recent global scenarios have impacted Tesla’s performance since the start of the year. Whether it is the continued issues with chips, Fed balance sheet issues, or the Ukraine Crisis, Tesla has been struggling to reach its All-time Highs. Stock split can be a reason to give a short-term push to the stock so that it can nullify the losses made since the start of the year and begins trading around $1200 as before.
- Stock split is also seen as a means to reward loyal shareholders and employees. In the current scenario, companies are looking for smart ways to remunerate employees and giving them shares and options which they can exercise later on to cut their tax liability- a smart way. With Amazon and Alphabet announcing the stock split, Tesla could not remain too far as they are also looking for a similar workforce.
Tesla Stock Split: Bottom Line
Investors will find it easy to buy stock post-split rather than buying fractional shares offered by some brokers. Stock splits in recent years tended to develop a psychology that the share price will jump post announcement and that has a cascading effect on the stock price.
Tesla announced on April 1 that it shipped 310,000 vehicles in Q1- a record number of deliveries. It is up by 67% from 184,800 vehicles shipped in the same quarter last year. It is also up by 0.5% from the last quarter when the number was 308,600 vehicles. Tesla is expected to announce full quarter results on 20th April 2022, but fourth-quarter revenue came at $17.7 billion, surging 65% YoY.
The point is that investors should not only look for stock split to add Tesla in their portfolio. There are many more reasons to do so, and Tesla Inc is a fundamentally very strong company with record deliveries being reported in every quarter.
For investors, considering only stock split news as deciding factor, they should wait for the October shareholders’ meeting to get more information about the split. Tesla stock is likely to get a boost post that meeting and details being revealed about the split like ratio and date. In all likelihood, split is not going to get effective at least till the end of the year and these investors will get a couple of chances to get the entry after the chaos on the global front subsides.
Tesla Stock Split: What is a Stock Split?
- First, it is very important to understand what a stock split is. The most important thing to know is that it technically does not make investors any wealthier and does not give the company whose shares are being split any incremental capital. A stock split in simple terms means the division of one share into multiple shares but the total value remains the same as of the original share.
- Analogically, it is similar to dividing existing food into four or five pieces but overall food remains the same. Similarly, shareholder ownership does not change before and after a stock split.
- One of the primary reasons, companies do stock split is to make shares more affordable to retail investors. This makes the company’s shares more liquid and accessible to more investors which is likely to give a boost to share price, but the same is not always true.
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